reading 18 CFA example 9 and 10 Pg 221 and 227

[Analyst1988]

Example 19 combines risk free asset with the corner portfolio to find the lowest standard deviation portfolio. I am little confused. Why don’t we try to combine the risk free asset in example 9 as well? Is there something I am missing?

 

[cpk123]

crucial difference - example 10 says minimize the std deviation (maximize sharpe ratio).

 

[Analyst1988]

Thanks cpk123 but even example 9 solution 1B says that the recommended portfolio has the highest expected Sharpe ratio.

 

[perdition]

Look at the constraints section = no borrowing or margin for thr first part, example 9.

 

[Analyst1988]

Perdition can you please explain how that constraint impacts our decision to add a risk free asset to the potfolio?